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Westmoreland Reports Second Quarter 2016 Results; Reiterates Full-Year Guidance

ENGLEWOOD, Colo., Aug. 02, 2016 (GLOBE NEWSWIRE) -- Westmoreland Coal Company (Nasdaq:WLB) today reported financial results for the second quarter and reaffirmed its full-year 2016 guidance.

Second Quarter Highlights

  • Revenues of $356.2 million from 12.0 million tons sold
  • Net loss applicable to common shareholders of $25.4 million, or $1.37 per diluted share
  • Adjusted EBITDA of $43.6 million

Six Month Highlights

  • Revenues of $711.0 million from 25.8 million tons sold
  • Net income applicable to common shareholders of $5.2 million, or $0.28 per diluted share, including a sizable tax benefit
  • Adjusted EBITDA of $106.5 million
  • Cash flow provided by operating activities of $37.4 million
  • Free cash flow of $28.1 million

“We remain on track to meet our 2016 adjusted EBITDA and free cash flow guidance based on our first half results and the demand trends that have continued to strengthen since June. We delivered second quarter profitability and cash flow right on our plan which factored in power demand at its lowest during the spring months," said Chief Executive Officer Kevin Paprzycki.

“We are executing well on our business strategies with a focus on maximizing cash flow from our sales volume. Based on our expectation that cash flow generation will be greater in the second half, we plan to reduce our total debt later in 2016.”

Safety

Westmoreland’s commitment to safety in all aspects of its operations is again reflected in the safety metrics.

Six Months Ended June 30, 2016
Reportable Lost Time
U.S. Operations 1.95 1.06
U.S. National Average 3.22 2.41
Percentage 61% 44%
Canadian Operations 3.68 1.12

Consolidated and Segment Results

Second quarter results are influenced by the normal seasonality of low springtime power demand and significant scheduled maintenance downtime at customer plants. While consolidated adjusted EBITDA was down 21% for the second quarter and 4% for the first six months compared with the same periods last year, cash flow from operations and free cash flow for the first six months exceeded last year’s levels. Coal - Canada had a strong second quarter in 2015 including accelerated loan and lease payments which aided adjusted EBITDA. In comparison, Canadian demand in the second quarter of 2016 was impacted by weather, most notably above-average rainfall. Coal - U.S. and Coal - WMLP segments grew adjusted EBITDA for the quarter and six months compared to the same periods last year. The Coal - U.S. growth resulted from the San Juan acquisition closing in the first quarter of 2016 and the Coal - WMLP growth was from improved operations.

Cash Flow and Liquidity

Westmoreland improved free cash flow generation during the first half of 2016 from the same period last year driven in part by recovery of cash from working capital. Free cash flow through June 30, 2016, was $28.1 million comprised of cash flow provided by operations of $37.4 million, less capital expenditures of $12.2 million, plus net cash collected under certain contracts for loan and lease receivables of $2.9 million. In the first six months, cash flow benefited from a positive working capital change of $6.6 million while asset retirement obligations were a use of $16.4 million.

Cash and cash equivalents on hand at June 30, 2016 were $35.9 million, a $12.9 million increase from year end. Contributing to the increase in cash on hand were the free cash flow generation of $28.1 million; proceeds from asset sales of $6.7 million; net cash debt reductions, mostly capital lease pay downs, of $17.0 million; cash used, net of loan proceeds received, to purchase San Juan of $3.1 million; and cash required for bonding of $0.7 million.

Gross debt plus capital lease obligations at quarter end totaled $1,181.0 million. The increase from year end is attributable to the San Juan financing. Gross debt includes $3.0 million drawn on the revolving credit facility at June 30, 2016. There was $43.3 million available to draw, net of letters of credit.

Full-Year Guidance

“This year, so far, is progressing normally and as we expected. The strengthening demand, and the resulting cash flow, taken together with our first-half results provide confidence in our ability to achieve our guidance this year,” said Paprzycki.

Westmoreland’s 2016 guidance remains:

Coal tons sold 53 - 60 million tons
Adjusted EBITDA $235 - $275 million
Free cash flow $60 - $80 million
Capital expenditures $59 - $71 million
Cash interest approximately $90 million

Notes

Westmoreland presents certain non-GAAP financial measures including Adjusted EBITDA and free cash flow that management believes provide meaningful supplemental information and provide meaningful comparability to prior periods. Reconciliations of non-GAAP to GAAP measures are presented in the accompanying tables.

Conference Call

Westmoreland Coal Company will conduct a joint earnings conference call with Westmoreland Resource Partners, LP (NYSE:WMLP), on August 2, 2016, at 10:00 a.m. Eastern Time. Participants may join the call using the numbers below:

Toll Free: 1-844-WCC-COAL (844-922-2625)
International: 1-201-689-8584
Webcast www.westmoreland.com/investors/investor-webcasts
Replay: 1-877-660-6853 or 1-201-612-7415
Replay ID: 13641125
Webcast www.westmoreland.com/investors/investor-webcasts

About Westmoreland Coal Company

Westmoreland Coal Company is the oldest independent coal company in the United States. Westmoreland’s coal operations include surface coal mines in the United States and Canada, underground coal mines in Ohio and New Mexico, a char production facility, and a 50% interest in an activated carbon plant. Westmoreland also owns the general partner of and a majority interest in Westmoreland Resource Partners, LP, a publicly-traded coal master limited partnership (NYSE:WMLP). Its power operations include ownership of the two-unit ROVA coal-fired power plant in North Carolina. For more information, visit www.westmoreland.com.

Cautionary Note Regarding Forward-Looking Statements

Forward-looking statements are based on Westmoreland’s current expectations and assumptions regarding its business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual results may differ materially from those contemplated by the forward-looking statements. Westmoreland cautions you against relying on any of these forward-looking statements. They are statements neither of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include political, economic, business, competitive, market, weather and regulatory conditions.

Any forward-looking statements made by Westmoreland in this news release speak only as of the date on which it was made. Westmoreland undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.


Westmoreland Coal Company and Subsidiaries
Summary Consolidated and Operating Segment Data (Unaudited)
Three Months Ended June 30,
Increase / (Decrease)
2016 2015 $ %
(In thousands, except tons sold data)
Westmoreland Consolidated
Revenues$356,247 $348,959 7,288 2.1%
Operating income (loss)2,989 (6,866) 9,855 *
Adjusted EBITDA43,558 55,281 (11,723) (21.2)%
Tons sold—millions of equivalent tons12.0 13.3 (1.3) (9.8)%
Coal - U.S.
Revenues$151,433 $132,620 $18,813 14.2%
Operating income3,850 801 3,049 380.6%
Adjusted EBITDA19,761 14,186 5,575 39.3%
Tons sold—millions of equivalent tons4.7 5.3 (0.6) (11.3)%
Coal - Canada
Revenues$109,064 $106,162 $2,902 2.7%
Operating income4,200 9,524 (5,324) (55.9)%
Adjusted EBITDA13,431 32,915 (19,484) (59.2)%
Tons sold—millions of equivalent tons5.6 5.9 (0.3) (5.1)%
Coal - WMLP
Revenues$80,468 $97,033 $(16,565) (17.1)%
Operating loss(4,282) (936) (3,346) (357.5)%
Adjusted EBITDA16,303 15,175 1,128 7.4%
Tons sold—millions of equivalent tons1.7 2.1 (0.4) (19.0)%
Power
Revenues$21,944 $21,334 $610 2.9%
Operating income (loss)6,731 (9,035) 15,766 *
Adjusted EBITDA614 (614) 1,228 *
* Not meaningful


Six Months Ended June 30,
Increase / (Decrease)
2016 2015 $ %
(In thousands, except tons sold data)
Westmoreland Consolidated
Revenues$710,968 $720,444 $(9,476) (1.3)%
Operating income14,527 1,591 12,936 *
Adjusted EBITDA106,513 111,309 (4,796) (4.3)%
Tons sold—millions of equivalent tons25.8 26.7 (0.9) (3.4)%
Coal - U.S.
Revenues$306,611 $287,487 $19,124 6.7%
Operating income15,129 7,919 7,210 91.0%
Adjusted EBITDA49,299 34,452 14,847 43.1%
Tons sold—millions of equivalent tons10.7 11.1 (0.4) (3.6)%
Coal - Canada
Revenues$202,498 $209,405 $(6,907) (3.3)%
Operating income16,609 19,388 (2,779) (14.3)%
Adjusted EBITDA36,874 57,838 (20,964) (36.2)%
Tons sold—millions of equivalent tons11.4 11.2 0.2 1.8%
Coal - WMLP
Revenues$172,949 $206,123 $(33,174) (16.1)%
Operating loss(3,473) (1,306) (2,167) (165.9)%
Adjusted EBITDA35,580 34,177 1,403 4.1%
Tons sold—millions of equivalent tons3.7 4.4 (0.7) (15.9)%
Power
Revenues$43,940 $41,984 $1,956 4.7%
Operating income (loss)931 (8,618) 9,549 *
Adjusted EBITDA(2,733) (3,227) 494 15.3%
* Not meaningful


Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations (Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 2015
(In thousands, except per share data)
Revenues$356,247 $348,959 $710,968 $720,444
Cost, expenses and other:
Cost of sales290,113 285,480 563,915 587,189
Depreciation, depletion and amortization33,663 34,263 68,676 72,322
Selling and administrative32,019 28,508 63,691 55,228
Heritage health benefit expenses3,222 2,162 6,237 5,221
Loss (gain) on sale/disposal of assets(2,253) 784 (1,917) 1,013
Restructuring charges 103 656
Derivative loss (gain)(5,878) 6,178 (3,278) 902
Income from equity affiliates(1,287) (1,653) (2,580) (3,678)
Other operating loss3,659 1,697
353,258 355,825 696,441 718,853
Operating income (loss)2,989 (6,866) 14,527 1,591
Other income (expense):
Interest expense(31,510) (25,304) (61,179) (50,039)
Interest income2,356 2,567 4,147 4,707
Gain (loss) on foreign exchange(364) (1,313) (1,751) 795
Other income254 534 132 726
(29,264) (23,516) (58,651) (43,811)
Loss before income taxes(26,275) (30,382) (44,124) (42,220)
Income tax expense (benefit)(100) 7,469 (48,035) 9,509
Net income (loss)(26,175) (37,851) 3,911 (51,729)
Less net loss attributable to noncontrolling
interest
(808) (1,246) (1,306) (3,392)
Net income (loss) applicable to common
shareholders
$(25,367) $(36,605) $5,217 $(48,337)
Net income (loss) per share applicable to common
shareholders:
Basic and diluted$(1.37) $(2.04) $0.28 $(2.72)
Weighted average number of common shares
outstanding:
Basic18,540 17,926 18,401 17,775
Diluted18,540 17,926 18,418 17,775


Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets (Unaudited)
June 30,
2016
December 31,
2015
(In thousands)
Assets
Current assets:
Cash and cash equivalents$35,876 $22,936
Receivables:
Trade142,587 134,141
Loan and lease receivables5,851 6,157
Contractual third-party reclamation receivables12,781 8,020
Other18,937 11,598
180,156 159,916
Inventories129,881 121,858
Other current assets19,823 16,103
Total current assets365,736 320,813
Property, plant and equipment:
Land and mineral rights597,450 476,447
Plant and equipment875,122 790,677
1,472,572 1,267,124
Less accumulated depreciation, depletion and amortization613,745 554,008
Net property, plant and equipment858,827 713,116
Loan and lease receivables50,161 49,313
Advanced coal royalties17,206 19,781
Reclamation deposits73,434 77,364
Restricted investments and bond collateral144,061 140,807
Contractual third-party reclamation receivables, less current portion154,926 86,915
Investment in joint venture28,045 27,374
Intangible assets, net of accumulated amortization of $3.4 million and $15.9 million at
June 30, 2016 and December 31, 2015, respectively
28,050 29,190
Other assets22,767 11,904
Total Assets$1,743,213 $1,476,577


Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets (Continued) (Unaudited)
June 30,
2016
December 31,
2015
(In thousands)
Liabilities and Shareholders’ Deficit
Current liabilities:
Current installments of long-term debt$87,754 $38,852
Revolving lines of credit3,000 1,970
Accounts payable and accrued expenses:
Trade and other accrued liabilities134,429 109,850
Interest payable20,386 15,527
Production taxes46,797 46,895
Postretirement medical benefits13,855 13,855
SERP368 368
Deferred revenue19,834 10,715
Asset retirement obligations50,944 43,950
Other current liabilities29,888 30,688
Total current liabilities407,255 312,670
Long-term debt, less current installments1,047,244 979,073
Workers’ compensation, less current portion4,992 5,068
Excess of black lung benefit obligation over trust assets17,594 17,220
Postretirement medical benefits, less current portion286,739 285,518
Pension and SERP obligations, less current portion43,702 44,808
Deferred revenue, less current portion22,441 24,613
Asset retirement obligations, less current portion449,857 375,813
Intangible liabilities, net of accumulated amortization of $10.3 million and $9.8 million
at June 30, 2016 and December 31, 2015, respectively
2,936 3,470
Other liabilities33,566 30,208
Total liabilities2,316,326 2,078,461
Shareholders’ deficit:
Common stock of $0.01 par value
Authorized 30,000,000 shares; issued and outstanding 18,569,845 shares at
June 30, 2016 and 18,162,148 shares at December 31, 2015
186 182
Other paid-in capital245,050 240,721
Accumulated other comprehensive loss(150,259) (171,300)
Accumulated deficit(667,002) (672,219)
Total Westmoreland Coal Company shareholders’ deficit(572,025) (602,616)
Noncontrolling interest(1,088) 732
Total deficit(573,113) (601,884)
Total Liabilities and Deficit$1,743,213 $1,476,577


Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30,
2016 2015
(In thousands)
Cash flows from operating activities:
Net income (loss)$3,911 $(51,729)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, depletion and amortization68,676 72,322
Accretion of asset retirement obligation and receivable14,297 14,112
Share-based compensation4,534 3,646
Non-cash interest expense4,554 2,664
Amortization of deferred financing costs6,630 4,997
Loss (gain) on derivative instruments(3,278) 902
Loss (gain) on foreign exchange1,751 (795)
Income from equity affiliates(2,580) (3,678)
Deferred income tax expense (benefit)(47,547) 10,265
Other(3,696) 1,832
Changes in operating assets and liabilities:
Receivables(2,008) 1,283
Inventories6,677 (8,789)
Accounts payable and accrued expenses(8,045) (1,560)
Deferred revenue6,948 (6,141)
Other assets and liabilities2,995 (16,367)
Asset retirement obligations(16,415) (10,914)
Net cash provided by operating activities37,404 12,050
Cash flows from investing activities:
Additions to property, plant and equipment(12,231) (38,554)
Change in restricted investments658 (10,598)
Cash received from restricted deposits 34,000
Cash payments related to acquisitions and other(125,314) (35,887)
Cash acquired related to acquisition, net 2,782
Net proceeds from sales of assets6,706 12,396
Receipts from loan and lease receivables3,268 12,606
Payments related to loan and lease receivables(334) (2,466)
Other3,095 1,193
Net cash used in investing activities(124,152) (24,528)
Cash flows from financing activities:
Borrowings from long-term debt, net of debt discount122,250 79,359
Repayments of long-term debt(17,991) (33,724)
Borrowings on revolving lines of credit195,400 35,175
Repayments on revolving lines of credit(194,370) (42,251)
Debt issuance costs and other refinancing costs(5,709) (4,252)
Other(529) 1,660
Net cash provided by financing activities99,051 35,967
Effect of exchange rate changes on cash637 (1,871)
Net increase in cash and cash equivalents12,940 21,618
Cash and cash equivalents, beginning of period22,936 14,258
Cash and cash equivalents, end of period$35,876 $35,876
Supplemental disclosures of cash flow information:
Cash paid for interest$47,972 $29,444


Westmoreland Coal Company and Subsidiaries
Non-GAAP Reconciliations (Unaudited)

The tables below show how the Company calculates and reconciles to the most directly comparable GAAP financial measure EBITDA; Adjusted EBITDA, including a breakdown by segment; and free cash flow.

EBITDA, Adjusted EBITDA and free cash flow are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. EBITDA, Adjusted EBITDA and free cash flow are included in this news release because they are key metrics used by management to assess Westmoreland’s operating performance and as a basis for strategic planning and forecasting. Westmoreland believes that EBITDA, Adjusted EBITDA, and free cash flow are useful to an investor in evaluating the Company’s operating performance because these measures:

  • are used widely by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
  • are used by rating agencies, lenders and other parties to evaluate creditworthiness; and
  • help investors to more meaningfully evaluate and compare the results of Westmoreland’s operations from period to period by removing the effect of the Company’s capital structure and asset base from the Company’s operating results.

Neither EBITDA, Adjusted EBITDA nor free cash flow are measures calculated in accordance with GAAP. The items excluded from EBITDA, Adjusted EBITDA and free cash flow are significant in assessing Westmoreland’s operating results. EBITDA, Adjusted EBITDA, and free cash flow have limitations as analytical tools, and should not be considered in isolation from, or as a substitute for, analysis of the Company’s results as reported under GAAP.

Other companies in Westmoreland’s industry and in other industries may calculate EBITDA, Adjusted EBITDA and free cash flow differently from the way that Westmoreland does, limiting their usefulness as comparative measures. Because of these limitations, EBITDA, Adjusted EBITDA and free cash flow should not be considered as measures of discretionary cash available to the Company to invest in the growth of its business. Westmoreland compensates for these limitations by relying primarily on its GAAP results and using EBITDA, Adjusted EBITDA and free cash flow only as supplemental data.

EBITDA and Adjusted EBITDA

EBITDA (earnings before interest expense, interest income, income taxes, depreciation, depletion, amortization and accretion expense) and Adjusted EBITDA are non-GAAP measures that do not reflect the Company’s cash expenditures, or future requirements for capital and major maintenance expenditures or contractual commitments; do not reflect income tax expenses or the cash requirements necessary to pay income taxes; do not reflect changes in, or cash requirements for, the Company’s working capital needs; and do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on certain of the Company’s debt obligations. In addition, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. Westmoreland considers Adjusted EBITDA to be useful because it reflects operating performance before the effects of certain non-cash items and other items that it believes are not indicative of core operations. The Company uses Adjusted EBITDA to assess operating performance.

Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 2015
(In thousands)
Adjusted EBITDA by Segment
Coal - U.S.$19,761 $14,186 $49,299 $34,452
Coal - Canada13,431 32,915 36,874 57,838
Coal - WMLP16,303 15,175 35,580 34,177
Power614 (614) (2,733) (3,227)
Heritage(3,518) (2,401) (6,999) (5,749)
Corporate(3,033) (3,980) (5,508) (6,182)
Total$43,558 $55,281 $106,513 $111,309


Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 2015
(In thousands)
Reconciliation of Net Income (Loss) to Adjusted
EBITDA
Net income (loss)$(26,175) $(37,851) $3,911 $(51,729)
Income tax expense (benefit)(100) 7,469 (48,035) 9,509
Interest income(2,356) (2,567) (4,147) (4,707)
Interest expense31,510 25,304 61,179 50,039
Depreciation, depletion and amortization33,663 34,263 68,676 72,322
Accretion of ARO and receivable7,290 7,077 14,297 14,108
Amortization of intangible assets and liabilities(260) (253) (427) (506)
EBITDA43,572 33,442 95,454 89,036
Restructuring charges 103 656
Loss (gain) on foreign exchange364 1,313 1,751 (795)
Acquisition related costs (1)133 568 1,400
Customer payments received under loan and lease
receivables (2)
2,727 11,418 5,387 15,521
Derivative loss (gain)(5,878) 6,178 (3,278) 902
Loss (gain) on sale/disposal of assets and other
adjustments
684 703 2,097 943
Share-based compensation1,956 2,124 4,534 3,646
Adjusted EBITDA$43,558 $55,281 $106,513 $111,309

___________________
(1) Includes the impact of cost of sales related to the sale of inventory written up to fair value in the acquisition of Westmoreland Resources GP, LLC, the general partner of WMLP.
(2) Represents a return of and on capital. These amounts are not included in operating income or operating cash flows, as the capital outlays are treated as loan and lease receivables but are included within Adjusted EBITDA so that the cash received by the Company is treated consistently with all other contracts within the Company that do not result in loan and lease receivable accounting.

Free Cash Flow

Free cash flow represents net cash provided (used) by operating activities less additions to property, plant and equipment (“CAPEX” or “capital expenditures”) plus net customer payments received under loan and lease receivable. Free cash flow is a non-GAAP measure and should not be considered as an alternative to cash and cash equivalents, cash flow from operations, cash flow from investing activities, cash flow from financing activities, net income (loss) or any other measure of performance presented in accordance with GAAP. Free cash flow is intended to represent cash flow available to satisfy our debts, after giving consideration to those expenses required to maintain our assets and infrastructure. Accordingly, although free cash flow is not a measure of performance calculated in accordance with GAAP, the Company believes free cash flow is useful to investors because it allows analysts and others in the industry to assess performance, liquidity and ability to satisfy debt requirements.

Reconciliation Net Cash Provided by Operating Activities to Free Cash Flow Six Months Ended June 30,
2016 2015
(In thousands)
Net cash provided by operating activities $37,404 $12,050
Less cash paid for property, plant and equipment (12,231) (38,554)
Net customer payments received under loan and lease receivables 2,934 10,140
Free cash flow $28,107 $(16,364)


For further information please contact Gary Kohn, Vice President Investor Relations 1-720-354-4467 gkohn@westmoreland.com

Source:Westmoreland Coal Company